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How are Chapter 13 payments calculated?

For many, bankruptcy is that valley of the shadow of death to be avoided at all costs. You don't know what's there and from everything you've ever heard you don't want to find out.

But when it comes to debt trouble, ignorance is not bliss for people in Illinois. Rather than go down that path it's better to get educated so you can make the best decisions for getting yourself onto the road to debt relief. If you can get the insight in a free initial consultation it makes sense to, doesn't it?

Chapter 13 bankruptcy is one of the options that individuals can consider to recover a solid financial foundation. Unlike Chapter 7, often called liquidation, Chapter 13 involves reorganizing debt to fit with your current financial circumstances.

To be eligible, you have to have a steady income and make enough to cover priority and secured debts. The former would be things like tax liens, child support or other court-ordered payments. The latter might be a mortgage or car payments.

These general guidelines may help you estimate what to expect for payments.

Start by adding up monthly obligations for those priority debts. These are the first things that must be paid under Chapter 13.

Next, if you want to keep your house and car, add up those monthly costs. Include any back payments that might be owed.

Step three involves creating a detailed list of living expenses. What are your monthly food, clothing and shelter costs? Include utilities. If you keep the car, calculate insurance, gas and maintenance for every month?

Now it's time to turn to the income side of the ledger. Any consistent monthly income, whether it's from work, investments or sources such as child support or alimony, should be added up. Don't count amounts deducted from income for taxes, health insurance or retirement funding.

Subtract the monthly priority and secured debts owed, and living expenses, from the net monthly income. Disposable income left will go toward unsecured debts.

The last calculation determines how long your bankruptcy term lasts. If your monthly net income is greater than the median for your state, you may have to plan on five years. If your net income is below the median, a three-year plan can be proposed.

With good planning, you'll have experienced legal counsel with you.

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